The Section 179 election most real estate owners never use

The provision

Section 179 allows expensing of qualified real property: qualified improvement property, plus roofs, heating, ventilation and air-conditioning property, fire protection and alarm systems, and security systems — where placed in service on a nonresidential building after the building was placed in service.

Bonus depreciation cannot reach roofs, HVAC, fire protection or security systems, because those remain 39-year structural components. Section 179 can.

Why this matters after a capital replacement

An owner replaces a $340,000 roof on a commercial building. Without an election it depreciates over 39 years at roughly $8,700 a year. Elected under section 179, it is deductible in full in the year placed in service, subject to the dollar and income limits.

That is a materially different outcome, and it is available on exactly the kind of expenditure owners make regularly.

The 2026 limits

$2,560,000 maximum deduction, with a dollar-for-dollar phase-out beginning at $4,090,000 of qualifying additions and complete at $6,650,000, under Rev. Proc. 2025-32. Both figures are indexed annually.

The income limitation

Section 179 cannot create or increase a loss. It is limited to aggregate taxable income from the active conduct of trades or businesses, with the excess carried forward indefinitely. Bonus has no such limit.

That difference is what usually decides which to use: if the goal is a loss that shelters other income, bonus is the tool. If the goal is to expense a building system bonus cannot reach, 179 is.

The active trade or business question

Section 179 requires property used in the active conduct of a trade or business. Whether a rental activity clears that bar is fact-dependent, and a single passive rental may not. Owners running a genuine rental business with substantial activity often can. Worth resolving before filing rather than defending afterwards.

Ordering

Fixed by statute: section 179 first, then bonus on remaining basis, then regular MACRS. A common post-study pattern is 179 on building systems bonus cannot reach, then 100% bonus on everything reclassified into 5, 7 and 15-year classes.